For those of you who don’t read Ken Harney’s weekly column, you need to. His latest article focuses on lenders and (residential) appraisers and the damage that they can do to our economy. Specifically, it cites a lawsuit brought against an appraisal “brokerage” service which essentially connects appraisers with lenders. The suit alleges that a large, national lender pressured the appraisal firm to select appraisers who were reportedly williing to inflate property values to allow sales/loans to go through. This is a macro example of a problem that occurs daily throughout our Richmond communities. For the record, I’m a commercial appraiser, as is my father who has been in the business for nearly 30 years. We have had no such pressure since I’ve been in the business (4 years), and very little since my father has been around. That said, it is RAMPANT in the residential sector. I moved (back) to Richmond in May. The home-buying process wasn’t horrible, but I wouldn’t do it regularly. Being an appraiser, I was pleased when my lender said they had chosen the best residential firm (P.E. Turner & Co.) in Richmond. It turned out that this firm actually appraised my home when it transferred last (in 2005 I think). Anyway, I was confident that they would conclude a value estimate that was fair and accurate. When the number came in $6,000 below the contract price, I was surprised, but satisfied nonetheless. Perhaps it was because I’m an appraiser, and I knew of the quality of the appraisal firm valuing my future home, but I knew that they got it right. When I told the selling agent of the results, he was very upset, and immediately suggested that we hire a second appraiser, presumably one who would put a higher value on the property. I’m not an expert on realtor/salesperson ethics, but I imagine that this agent did nothing wrong is making that suggestion/request. Of course we did not comply, and we purchased the house at the appraised value. The point is that this scenario happens everyday, in every market. It’s not nearly as severe or harmful as the lawsuit cited by Mr. Harney. I submit though, that my situation stemmed from similarlary conflicted roles and codes of conduct. Think about it: a residential appraiser is making $300-$400 on an appraisal; the salesperson is making as much as $12,000 on the sale. Practically speaking, the appraiser will lose his reputation if he/she were to inflate value; the salesperson is undoubtedly praised by fetching the highest possible price. I assure you that appraisers are bound my much stricter regulations and standards in reporting value than are salespeople. Actually, I’m not even sure what salespeople are reporting when they do a CMA. Unfortunately, I think most sellers believe they’re reporting market value. They are not!
There is no easy answer or quick fix to the problem of appraiser pressure. I just hope that awareness of the problem might give pause to salespeople, buyers/sellers, and lenders the next time appraised value doesn’t meet their expectations. The appraisers are reporting market value. They’re not sabotaging sales.